Mobile Payments Could be a Game Changer

Mobile phones in retail will do much more than offer another method for consumers to pay for purchases; they can change the way customers shop and how retailers process payments.

Why has ARTS prioritized standards support for mobile transaction processing in the midst of a recession when most retailers are not looking to make investments in technology? Because many retail experts believe the benefits of mobile processing are of such significance that investment is required now to secure a place for retail in the future of mobile phones.

French retailer Carrefour has recently announced a mobile payment trial, Kraft Foods launched menu and cooking instructions via an iPhone application and other trials are under way at AMC Theaters, 7-Eleven and Best Buy.

Start with the fact that more than three billion people have cell phones — twice as many as have credit cards – and you immediately have 1.5 billion potential new customers whose purchases can be tracked for promotions. Consider the impact on sales if you can contact a customer anywhere in the store with special offers and reminders of important dates like birthdays and anniversaries, then expand these services and promotions with text messages.

Kraft helps customers shop, and then follows up with preparation ideas. While we are talking grocery, think of the processing savings when coupons are electronic and automatically included in the tender. There also is great potential in allowing consumers to scan a bar code to find accurate and searchable information about any product. (Of course, the consumer could then use the universal ID number to search for lowest price, but most retailers don’t want to compete solely on the basis of price.)

Other payment options
The introduction of mobile payments is the perfect time for retailers to consider other new payment options, as well. The easiest and most often discussed is simply to have consumers store credit card account information within the memory of their phones.

Debit cards are another option; in some countries, the phone company will store the charge and add it to customers’ monthly phone bills.

Yet another innovative option is Automated Clearing House (ACH), an electronic network for financial transactions in the United States governed by NACHA-The Electronic Payments Association and the Federal Reserve.

The good news is that ACH payments cost pennies; the bad news is that the payments may not clear for 24 hours or more. With the documented agreement of the customer, the mobile device could generate ACH transactions.

Potential for savings
All of these new payment options need to be given strong consideration in view of credit card interchange fees that totaled $42 billion in 2007. Interchange fees add an average of approximately 3 percent to sales; in fact, when gasoline was $4 per gallon, many gas stations refused to accept credit sales. There is great potential for savings if mobile payments allow retailers to reduce the amount of interchange fees they pay.

What will it take to facilitate wide-scale implementation of mobile payments? It will require global standards currently in development by many associations, investment by the retailing and banking industries and collaboration among all involved parties.

ARTS is monitoring progress in this area and working with groups like the GSM Association to get a seat at the table for retail. You can help by volunteering to assist NRF and ARTS in preparing for mobile payments in retail. E-mail me at maderr@nrf.com if you would like to be involved.